Kampala- The International Monetary (IMF) has asked the Uganda government to avoid accumulation of domestic arrears and increased domestic borrowing as these might lead to a domestic debt crisis.

Uganda is currently faced with a large volume of arrears which stand at about Shs2.2 trillion, while at the same time it has heavily borrowed from the domestic financial market to the tune of Shs1.7 trillion using treasury bills and bonds.

The IMF mission team has been in the country for the last two weeks carrying out reviews on its new Policy Support Instrument (PSI) with Uganda.

At the end of the mission on Tuesday, Ms Ana Lucía Coronel, the IMF mission chief and senior resident representative for Uganda, said on the expenditure side, that it will be essential to focus on areas that support growth and job creation. “In particular, the mission urges the authorities to take steps to avoid incurring domestic arrears that weaken economic management by impairing budget planning, increasing costs for the government, and negatively affecting those who conduct business with the government,” Ms Coronel said.

“There is also a need to pay increased attention to revenue mobilisation. Following the recent large shortfall in tax revenue and the risk of reductions in foreign aid, broadening the tax base and improving efficiency in tax administration are more critical than ever,” she added.

Ms Coronel said the mission encourages the government to take decisive action to increase tax revenue collections pointing out that this would involve reviewing existing tax laws and eliminating tax exemptions that have little benefit for production but undermine growth-enhancing spending and constrain the vibrant private sector growth.

Collection of tax revenue by Uganda Revenue Authority is hindered by high levels of non-compliancy, however, the IMF says efforts should also focus on strongly enforcing compliance by all taxpayers.

The IMF says the ongoing issuance of national identity cards should support the government’s efforts to achieve the long-awaited plan to raise Ugandan tax revenue and bring it closer to regional standards.

Ms Coroner explained that sound fiscal policies supported by robust revenues and predictable spending would help reduce the need for large borrowing in the domestic market to finance government operations, and effectively contain interest rate increases on government securities.